Europe faces Japan syndrome as credit demand implodes

Europe (minus Germany) looks more like post-bubble Japan each month.
The long-feared credit crunch has mutated instead into a collapse in DEMAND for loans. Households and firms are comatose, or scared stiff, in a string of countries.

Demand for housing loans fell 70pc in Portugal, 44pc in Italy, and 42pc in the Netherlands in the first quarter of 2012. Enterprise loans fell 38pc in Italy. The survey took place in late March and early April, and therefore includes the second of Mario Draghi’s €1 trillion liquidity infusion (LTRO).
The ECB said net demand for loans had fallen “to a significantly lower level than had been expected in the fourth quarter of 2011, with the decline driven in particular by a further sharp drop in financing needs for fixed investment.” Demand fell 43pc for household loans, and 30pc for non-bank firms.
Mr Draghi told MEPs today that his three-year loans had at least averted a horrendous crunch. “Our LTROs have been quite timely and successful. I think buying time is not a minor achievement.” He is certainly right about that. The mess he inherited from the Merkel/Sarkozy expropriations of bondholders in Greece, and the Trichet/Stark tightening of monetary policy was calamitous.
This slump in loan demand is more or less what happened during Japan’s Lost Decade as Mr and Mrs Watanabe shunned debt. Zero interest rates did nothing. The Bank of Japan was “pushing on a string” (though it never really launched bond purchases with any serious determination).